Shorting Glaciers: Why You Should Know Your Asset Manager’s View on Climate Change

By David Hoy

This year is on track to be the hottest on record due almost exclusively to climate change. With a warming planet comes rising sea levels, severe storms, and drought. While governments are taking steps to prevent, or at least mitigate climate change, asset managers are looking for new investment opportunities. Fund managers now join politicians and business leaders at international climate summits and invest in technology that tracks and predicts significant climate events.

Climate events significantly impact national and local economies. In 2018, more than 1.8 million acres of California land was affected by wildfires which resulted in $24 billion in damages. The damages stemming from the floods in the midwestern United States earlier this year are still unknown, but some estimates put the total losses at least $12 billion. The total long term effects of unencumbered climate change cannot be quantified. Potential profits for those who can model climate trends and invest accordingly, however, can and are being monitored carefully.

Investor response to climate change has come in three forms. There are those who invest in mitigation technology like electric cars and solar panels, those who invest in disaster prevention (think sea walls and disaster kits) and those who place bets on how climate events will impact industries and economies. To a certain extent, the last category encompasses the first two.

In the short term, climate change will hurt some communities and benefit others. Some asset managers have capitalized on this trend by investing in real estate away from the coast because they anticipate that local governments will struggle to provide the infrastructure needed to mitigate the reported one- to four-foot increase in sea level within the next century.

Other professional investors are skeptical that there is enough time to reverse the effects of climate change, but still believe that sound investing can help mitigate its most severe consequences. These firms seek to align their capital with companies that try to reduce the amount of carbon dioxide in the atmosphere and prevent deforestation.

It is essential for clients of large mutual funds and private wealth management firms to be aware of the policies those firms have toward climate change and to understand where their money is going. Some may even opt for climate-sensitive mutual funds that primarily invest in energy efficiency and battery storage. Investors should discount any potential effects that their positions have on the planet from profits made by climate-agnostic firms. Everyday investors should seek to align themselves with asset managers that are climate hopefuls. If they are unsure of how to do so, they should, at the very least, express their concerns to their brokers.